Utilities Unbundled 16

EY Utilities Unbundled 16: Utilities are trading up
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Utilities are trading up

Utility trading businesses must be more adaptable than ever. Christopher Delbrück, CEO of E.ON's trading business, gives us his view of recent changes and opportunities.

We’re seeing a fundamental change in the global balance of energy markets — both power itself, and power as a derivative of commodities. Cheap shale gas, subsidized renewables and low European power prices are causing big shifts in how utilities run and optimize power stations.

A series of regulatory interventions will also impose constraints on trading, and new capital adequacy requirements could place heavier burdens on the sector.

E.ON Global Commodities (EGC) runs one of Europe’s broadest power and gas portfolios and wants to expand its global presence across North America and Asia to diversify risk and drive growth.

We’re seeing a fundamental change in the global balance of energy markets – both power itself, and power as a derivative of commodities.

Current opportunities for EGC

Developments in the flow of natural gas will be favorable for the new global EGC business. The European gas market and the global LNG market will become more closely linked, and that provides opportunities if you play on both sides.

As banks in the US leave the trading sector, there is an opening for companies like EGC to fill their shoes — another motivation for EGC to expand into the US power and gas business.

Reinventing the business

Integrating two former E.ON businesses to create EGC has been demanding. We had to reinvent ourselves to become global in our culture and practices.

Cultural change is the biggest challenge. We are transitioning to a different kind of working partnership with upstream partners, with a whole new risk/reward balance.

Focus on innovation

In terms of where EGC needs to be most innovative over the next 5-10 years, one aspect is developing products and services for the power market to protect and generate value in the short term — week-ahead, day-ahead and intra-day business.

There is also an opportunity to provide third-party services and opportunities to help customers manage their asset portfolios, especially on the wind side.

In the longer-term, as liquidity has dropped, origination will play a much stronger role in future. Customers are becoming more sophisticated in the way they manage risk and we need to find products that meet their long-term needs.

In gas, the biggest innovation will be flexibility — how to deal, manage and create value with flexible portfolios.

Energy storage is set to become a key transforming factor, eliminating a lot of the need for flexibility in matching supply and demand.

Foundation for growth

EGC will focus on creating value for clients through asset-backed trading. We understand assets and their need to be managed and optimized in a market.

The challenge is gaining trust in new markets: To convince counterparties to deal with us and build our reputation requires a lot of senior, physical presence in these new locations.

For more information, contact:

EY - Metin Fidan

Metin Fidan
Advisory Services

Berlin, Germany
+49 30 25471 21379